Nifty  Weekly Update

Nifty manages to reclaim 8000 level in September series  on Friday and closes up 53 pt at 8001.95 and Sensex up by 161.19 pt  at 26392.38 amid the volatility.Indices posted 3.6% weekly losses . Weak global markets and sharp depreciation in rupee the main reason behind the correction in the markets.Sell off by FII aided the momentum of the fall. However on Friday Indices traded in the positive trajectory backed by strong US and Asian market but seen huge volatility during the mid session followed by weak European market.

Next week some major data releases will set the tone for the direction of the market. Q1 GDP data for June 2015 will be released on Monday 31st August 2015.Shares of public sector oil marketing companies (PSU OMCs) will be in focus as a regular fuel price review is due at the month end.Automobile companies will be in focus as they will start announcing monthly sales volume data for August 2015 from Tuesday, 1 September 2015.

On Global Front Eurozone Market Manufacturing PMI data for August 2015 is due on Tuesday, 1 September 2015. European Central Bank's (ECB) monetary policy statement is scheduled on Thursday, 3 September 2015. On the same day, Eurozone Market  Services PMI data for August is due.In US Market , the crucial monthly non-farm payrolls data for August is due on Friday, 4 September 2015.

All the above factors will dictate the market direction in the week to come.

Nifty CMP 8001.95 (Spot)

Resistance Level 1: 8050

Resistance Level 2: 8150

Support  level 1:  7950

Support level 2:   7900

Note: Levels are for references  and valid Intraday only

Energy is the key factor for the development of any  Economy.Its requirement spreads from the  simple work of transport to the complexity of Industrial production. It is an integral component of any industry.It would not be an exaggerate statement  to say that energy is the base of the growth and development of an economy.The Indian oil & gas industry constitute around 15% of India's GDP.The Indian power sector is undergoing a significant change that is redefining the industry outlook. Sustained economic growth continues to drive power demand in India. The Government of India’s focus to attain ‘Power For All’ has accelerated capacity addition in the country. Energy intensity is a measure of the energy efficiency of a nation's economy. It is calculated as units of energy per unit of GDP. High energy intensities indicate a high price or cost of converting energy into GDP. Low energy intensity indicates a lower price or cost of converting energy into GDP.The energy intensity of India is over twice that of the matured economies, which are represented by the OECD (Organization of Economic Co-operation and Development) member countries .

   Demand and supply scenario

In the recent years, India’s energy consumption has been increasing at one of the fastest rates in the world due to population growth and economic development. India ranks fifth in the world in terms of  Primary energy consumption accounting for about 3.5% of the world commercial energy demand in the year 2003. Despite the overall increase in energy demand, per capita energy consumption in India is still very low compared to other developing countries. India is well-endowed with both exhaustible and renewable energy resources. Coal, oil, and natural gas these are the three primary commercial energy sources. Coal was by far the largest source of energy.  India’s primary energy mix has been changing over a period of time.

Strantum of Energy Sector

Coal:

India ranks third amongst the coal producing countries in the world. Being the most abundant fossil fuel in India till date, it continues to be one of the most important sources for meeting the domestic energy needs. It accounts for 55% of the country’s total energy supplies. The Planning Commission’s 12th Plan expects total domestic energy production to reach 669.6 million tonnes of oil equivalent (MTOE) by 2016–17 and 844 MTOE by 2021–22. The Indian power sector has an investment potential of Rs 15 trillion (US$ 237.35 billion) in the next 4-5 years, providing immense opportunities in power generation, distribution, transmission and equipment.

Road Ahead:

The immediate goal of the government is to produce two trillion units (kilowatt hours) of energy by 2019. This will mean doubling the current production capacity in order to achieve provide 24x7 electricity for residential, industrial, commercial and agriculture use.

Top Pick:Coal India

Oil& Gas:

The oil and gas sector is one of the six core industries in India. It is of strategic importance and plays a pivotal role in influencing decisions across other important spheres of the economy. India increasingly relies on imported LNG. The country was the fifth-largest LNG importer in 2013, accounting for 5.5 per cent of global imports. India’s LNG imports are forecasted to increase at a CAGR of 33 per cent during 2012–17.

Road Ahead:

By 2015-16, India’s demand for gas is set to touch 124 MTPA against a domestic supply of 33 MTPA and higher imports of 47.2 MTPA, leaving a shortage of 44 MTPA, as per projections by the Petroleum and Natural Gas Ministry of India. Moreover, Business Monitor International (BMI) predicts that India will account for 12.4 per cent of Asia-Pacific regional oil demand by 2015.

Top Pics: BPCL ,IGL ,IOC ,Relaince ,ONGC

Renewable Source : Solar/Hydro Power

The  government National Solar Mission  targeted at  100,000 MW capacity by 2022. The government has also sought to restart stalled hydro power projects and increased the wind energy target from 20 GW to 60 GW by 2022. 

Top Picks: Suzlon

Future scenario

Increasing pressure of population and increasing use of energy in different sectors of the economy is an area of concern for India. According to The International Energy Outlook 2005 (EIA 2005b) projects India’s gas consumption to grow at an average annual rate of 5.1%, thereby reaching 2.8 trillion cubic feet by 2025 with the share of electric power sector being of 71% by that time. Coal consumption is expected to increase to 315 MT over the forecast period. 

The Planning Commission’s 12th Plan expects total domestic energy production to reach 669.6 million tonnes of oil equivalent (MTOE) by 2016–17 and 844 MTOE by 2021–22..By 2030 – 35, energy demand in India is projected to be the highest among all countries according to the 2014 energy outlook report by British oil giant BP.The industry has attracted FDI worth US$ 9,548.82 million during the period April 2000 to February 2015 .The RE-INVEST 2015 initiative by government of India , is a significant step in making India self-reliant in energy. The Indian power sector has an investment potential of Rs 15 trillion (US$ 237.35 billion) in the next 4-5 years, providing immense opportunities in power generation, distribution, transmission and equipment.

According to the IMF India’s growth is likely to improve from 7.2% in 2014 to 7.5% both in 2015 and 2016 (up 1.2% and 1% from the January WEO forecast) China’s growth is projected to slip from 7.4% in 2014 to 6.8% this year and further down to 6.3% next year.With direct correlation to the growth the sector will irrefutably perform steady in the medium to long term.

The Reserve Bank of India at its third bi-monthly Monetary Policy kept the benchmark repo rate unchanged at 7.25 percent  and  cash reserve ratio (CRR) at 4 percent. Consumer price index (CPI) inflation rose for the second straight month in June 2015 to a nine-month high of 5.4%;Consumer inflation target for Jan-March 2016 cut by 0.2%  mostly on lower crude prices and good monsoon.RBI kept the room for further rate cuts by keeping  growth revival and FED rate outlook in consideration.Urban consumption demand seems to be picking up shown by  stronger July Car sales data.However  Signals from the services sector were mixed.The pick-up in heavy commercial vehicle sales and rising port and domestic air freight in Q1 suggest strengthening transportation activity .RBI keep watch on the effect of hike  in service tax which came effect from  June 2015, looking for its full fledged out turn  in the coming year.RBI is heedful of torpid exports as well as supply constraints.

Indian Banking Sector is facing a challenges  for the  very long time.Rising NPS , Falling NIIs , Loan Defaults, Industrial slow down all playing spoil sport for the banking sector  performance  specific to Public Sector . Government for long was planning to infuse capital in these units as the  sector is the back bone of the  economy .

In Keeping the challenges in the view Government announces a Seven Point program named " Indradhanush" to revive the performance of PSU Banks:

 The Seven color of Indradhanush Includes:

1. Appointments
2. Board of Bureau
3. Capitalization
4. DE-Stressing
5. Empowerment
6. Framework of Accountability
7. Governance Reforms

 Banks Board will handle the existing  appointment board , Board will have 3 members each from government and private sector banks .The Board will be operational from April 2016.The members will be headed by the RBI governor and the appointment will start in next 6 months. 13 PSU banks would get Rs 20,058 Cr this financial year under recapitalization plans.The rest Rs 5,000 Cr would be allocated based on efficiency criteria. SBI will be the most beneficial of the scheme as it get highest of infusion ,Rs 5,511 Cr followed by bank of India at Rs 2,455cr, IDBI at Rs 2,229 Cr,PNB at Rs 1732cr and IOB at Rs 2009.As far as appointment concerns former Microsoft India Chairman Ravi Venkatesan as Chairman of Bank of Baroda.Other appointments include T N Manoharan as Non-Executive Chairman of Canara Bank, G Padmanabhan as Non-Executive Chairman of Bank of India.Six more Non-Executive Chairman posts to be filled in 6 months.Other strategic initiatives such as consolidation may also be announced.Rs 20,000 crore capital infusion into PSBs will be released in a month.

Government ensure that there is no need to panic as all the above steps have been taken by the government to meet the challenges and to revamp the existing condition of the Banking sector.

 Rupee Annihilated@ 66

The Indian Rupee has breached the level of 65.80 to a dollar in the last trade on 21st August 2015.In 2015  rupee is falling in the tune with the emerging economy currencies  However it is still among the top five  best performing currencies in the world.The dollar rally has taken a toll on the usual suspects, emerging market currencies.As per the data  the Brazilian real, Turkish lira, Thai baht, Malaysian ringgit and Indonesian rupiah are down between 7.6 percent and 23.3 percent till the date.The overall currency devaluation is being triggered by the Chinese yuan. This will keep the pressure on the rupee for sum more time to come. To be competitive, the Reserve Bank of India (RBI) will not be too uncomfortable with the rupee at 65-65.50 a dollar, While easing energy prices, robust foreign direct investment and a longer period of easy global monetary policy were welcome news for India, the rupee had to weaken to insulate from  cheap imports from China and elsewhere.

Currency depreciation is generally linked  with  stimulus because it improves  net exports, one of the  main drivers of economic growth, along with consumption and investment. Although such movement will come with own set of   risk of high Inflation and depleting foreign exchange reserve if not controlled with prudence.

How much We need to worry About the fall?

There are  three reasons why RBI may not intervene at this level:

1.  Inflation is coming at lower levels. The latest CPI  data July  exaggerates the extent of disinflation attributed to the  base effect. Food prices were high in the same month last year. But it now seems quite certain that the Reserve Bank of India (RBI) is on course to meet its January 2016 inflation target.
2. Declining Commodity prices at International level eases the fear of rising inflation as for now.As India is the net importer of Crude oil.
3.  RBI is siting comfortably with large foreign exchange reserve to meet any emergency payment scenario.RBI bought dollars to build a buffer in case there is another global shock once the Federal reserve  come up with increased interest rates in near future.

Index weekly Update

Key Benchmark indices inches higher in the last week ended Friday,17 july 2015.Although Financials and Banking stocks were mostly down during the session but have gained during the last two trading days. Pharma, IT, Selective Auto Stock and Mid Cap stocks helps the market to continue the Northway  direction.Sensex rose 801.91 pts or 2.89% to close at 28,463.31 and Nifty gained 249.30 pts or 2.98% to close at 8609.85 , highest closing since April 16,2015.Sentiments were foster after Greece granted  another bailout pacakge by the parliament  and clearence to composite FDI cap from cabinet . Strong rupee also aided the rise of the index.

On the global front,US market were mixed Dow ended at 18086 down 33.80 pts  or -0.19% ,S&P 500at  2126.64 up  2.35 pts  or 0.11% and NASDAQ closed higher at 5210 up 46.96 pts  or +0.19% .  European markets were cautious ahead of the German parliamentary vote on the Greek bailout. France's CAC, Germany's DAX and Britain's FTSE were mixed. Asian benchmarks barring Kospi closed highe, Shanghai Compositeposted gaines of 3.5 percent.

Last week Index manages to trade in green territory it will be intresting to watch  if same  momentum  it can hold  the coming week.Some selling pressure is expected at higher levels  as of profit booking.However  lower level  can be taken as opportunity to add the further long position.

Nifty 

CMP:       8609.85

RES 1      8625

RES 2     8655

SUP 1     8580

SUP 2     8550

Note: Levels mentioned are for Intraday .

Stock Market and Economy

The London Stock market has a market capitalization of US$6.06 trillion (2014). Stock market movement influence economic situations and everyday life of people directly or indirectly.As today we are living in a global village collapse in share prices of one market causes ripple effect on other markets and widespread economic disruption. The great depression in 1930's can be taken as the most famous example of the after effects as the the stock market crashes in 1929. More recently global financial meltdown happened in 2007 witness the crashing of stock market all over the globe marking as the beginning of economic recession. Yet, daily movements in the stock market can also have less impact on the economy.

 Economic Effects of the Stock Market:

1.Wealth Effect: Fall in share prices leads to fall in wealth with ripple effect on consumer spending habit  .However long term outlook hardly changes with the short term lose  often people are already prepared for the short term looses in the share market.

2.Effect on Pensions:Pension funds invest a significant part of their funds in the stock market. Any turmoil in the prices of the stock will results in value reduction of the pension funds.

3.Confidence: Often share price movements are reflections of what is happening in the economy. E.g. a fear of a recession and global slowdown could cause share prices to fall. The stock market itself can affect consumer confidence. 

4. Investment: Falling share prices can hamper firms ability to raise finance .Companies  issue new shares to raise funds as its is cheaper  source of capital than the raising  debt. However with falling share prices It would be a difficult task for the company. 

5. Bond Market: A fall in the stock market makes other investments more attractive. People tend to move into gold or government bonds as they considered as safer investment alternatives.

   India is back on investors’ radar

 India is back on investors’ radar can be concluded by the OECD publication at least. The OECD (Organisation for Economic Co-operation and Development) publishes composite leading indicators, or CLIs. CLIs intend to “provide early signals of turning points in business cycles”.India’s indicator has been rising consistently from its trough of 98.1 in November 2013. This indicates an uptrend in India’s business cycle.

Why Macroeconomic Indicators are Important:

Although stock markets can help you understands  investors’ mood however  they’re prone to irrational behavior.Macroeconomic indicators assess the economy’s health—even though most of them are released with a lag. 

Following is  the list  Indicators which should be studied to gauge the Index Performance:

1    Gross Domestic Product( GDP):GDP expanded by  7.3% in 2014-2015.Capital formation is continued to be on lower edge at 28.7% of GDP against 29.7 in 2013-2014.Manufacturing sector grew by 7.1% in current year as compare to 5.3 % in 2013-2014. Almost all the sector grew this year except Agriculture.Agriculture. However numbers are encouraging enough to put the investors faith in the market.

  2.Fiscal Deficit:India is a developing country. As a result, fiscal deficit is expected. The government is expected to spend in order to provide infrastructure.In FY 2013-2014 Fiscal deficit was 4.5% of GDP , it was 5.08 trillion rupees .The government aims to lower it to 4.1% of GDP in the current year.

 3.Trade deficit: Since its independence in 1947, India maintained a trade deficit with the world. It maintained a trade deficit almost continuously. In fact, in fiscal year 2013, India recorded its highest trade deficit ever. It was$190 billion. However Current statistics shows improvement in the trade deficit mostly on lower international commodity prices.

 4.Inflation:India has two measures of inflation:

WPI (wholesale price index)

CPI (consumer price index)

  5.India's Industrial Production:(IIP): Industrial production is measured by the Index of Industrial Production, or IIP. The index tracks 682 items under three sectors:Manufacturing has the highest  contribution at  75.5%. It’s followed by mining at 14.2%. The IIP is a monthly indicator. It’s released with a one month lag—for example, the release in July will be for May.The government is taking every required step to spur the industrial growth with major focus on manufacturing

mining

manufacturing

electricity

 Look Outs For 2015:

 India is part of the BRICS(Brazil, Russia, India, China and South Africa) nations. This is a group of major and high-potential emerging countries. The countries are distinguished by their large economic size, population size, and political influence. As a result, tracking their economic growth is important.It’s important that investors watch all of the indicators this year. India needs to be brought back to a steady growth path. Some of the indicators are related.So, an improvement in one indicator could be positive for another indicator.The FIIs need to be facilitated in the country that would support stock market.Therefore, foreign investors need to sustain in the Indian market as their movement effects the stock prices.  There exists requirement for the initiative to be taken by government to reduce interest of investors in yellow metal and enhance the investment in share market through improving the confidence level investors in the stock market.

Summary:

Current year is very crucial  for India’s economy. With a strong public mandate, expectations from the government are very high. Structural reforms and developments can make this a turnaround year for India.There are low fuel prices in the medium term. This can keep inflation in check. .Supportive monetary policy by RBI can help India achieve the desired growth goals.However, weak decision making on reforms, or a re-ignition of the inflation flame, will deter India’s central bank from loosening monetary policy. This would be negative for India's economic growth.Thus from the above discussion it  can  be conclude that economy conditions of the country will foretell  most of the time the expected boom or doom of the market. In particular reference to India further Positive data and sustained  efforts  from the government  can set the path for the  continuous ride in the Index.

TCS-----------Quarterly Update:

 Stable Quarter but propagating   with decreased momentum 

TCS is the India's largest IT service provider.The company has total count of 58 subsidiaries provides end-to-end technology and technology related services to corporations all over the world .TCS has strong domain expertise in banking, financial services & insurance (BFSI), retail & consumer packaged goods, telecom, media & entertainment, manufacturing, life sciences & healthcare, energy resources & utilities, travel transportation & hospitality and hi-tech.TCS has made significant investments in ‘Digital Five Forces’ - mobility, social computing, big data, cloud and artificial intelligence/robotics. Digital enterprise software and solutions unit of TCS is rapidly growing its customer base, products and services portfolio and digital professionals.

Growth Factors: 

• Revenue: Recent Q1FY16 shows  revenue (USD) rises 35% QoQ and 93% YoY basis. Constant currency revenue growth stood  at 3.5% QoQ and 15.8% YoY and  Volume growth stood at 4.8% .

• Operating Profit : Operating Income posted at  67,484 Mn and  Operating Margin stood at  26.3%  and Net Income posted  at  57,089 Mn which amounts for  Net Margin of 22.2%.Operating profit grew by 2.4 percent sequentially to Rs 6,748.4 crore and margin declined 91 basis points to 26.3 percent due to wage hikes and rise in visa cost, which were estimated at Rs 6,605 crore and 25.64 percent, respectively.

• Demand: Recent quarter number shows xisting as well as new client addition. Clients in $100M+ revenue band increased by 1, in $50M+ revenue band by 1 and in $20M+ revenue band by 10.Strong growth in BFS, Retail, Life Sciences and Telecom; North America & UK .

• People: Human Resources added to the comapny baseline .Number posted gross addition of 20,302 associates, closing headcount comprises  324,935.

• TCS has declared an interim dividend of Rs 5.50 per equity share and fixed July 21, 2015 as the record date for the purpose of payment of dividend

Key Risk:

• Global Economic Situation:  Company major revenue comes from North America & Europe.Although economics situation in these economy showing sign of recovery still  company is in constant search to find out the new markets Company focus on Increased efficiency and overall business vertical growth to mitigate the risk.

• Restrictive cross border mobility legislation:Tariff trade barrier  by  some countries may lead to multitude of challenges. Mobility of resources across the globe will be impacted, leading to increased costs and margin pressures.

• Integration risks in M&A:The Company’s post-acquisition challenges include cultural, financial and technology integration risks which if not inscribe in requisite manner   could result in failure to achieve the strategic objectives of the acquisition and the resultant synergy expectations.

 Conclusion:

 During Q1,  T CS posted the incremental revenues of $136 million driven by strong growth across core markets led by North America, UK, Europe, MEA and Asia-Pacific. Growth among industry segments was led by Retail, Life Sciences, BFSI and Teleco.T CS has market cap of 4938662.62 Cr which makes it a heavyweight in the sector. RONW of the company  at 43.05% and ROCE 53.73% in peer comparison which shows the better performance in terms of returns   with the other companies in the sector.However with current valuations Stock is bit expensive .

HEXAWARE TECHNOLOGY

About The Company:

Hexaware is a global IT provider with a revenue over $422.4 million.Comapny operates in IT, BPO and consulting services provides servicesto Banking, Financial Services,capital market ,Healthcare ,Insurance,travel,transportation,Logistics,Manufacutring & Consumers .Company global operations located in North America, Europe and Asia Pacific.

Investment Rationnel:

• FY 2014 revenue stood at 2581.7cr .It is up 13% yoy basis.                  

• Cash & Cash equivalents at the end of March 2015 at US$ 56.34 mn.

• Q1 2015 revenue at 713.4 Crores; up 0.2% QoQ & 21.1% YoY .

• Q1 2015 revenue at 713.4 Crores; up 0.2% QoQ & 21.1% YoY

• EBIT for Q1 2015 at 115.5 crores; up 12.6% from 102.5 crores last quarter

• Q1 2015 PAT at 83.3 crores

• Cash & Cash equivalents at the end of March 2015 at 352 crores

Risk Factor:

• Micro Economic Risk: The  pricing pressure and decreased employee utilization rates is a major concern.Company major revenue comes from US and Europe an economic slowdown in economy could negatively hamper the business.

• Delivery and operational risk:The growth and success depends on its ability to hire, attract,motivate, retain and train highly skilled technology personnel .

• Regulatory Risk:Any change in regulations in any  of its operations may deviate the growth and might result in decrease revenue if not according to the desired effect.

• Business Model Redundancy:The new technologies , such as cloud, big data mobiles smart devices and social media are impacting the behavior of the consumers.

• Cost Pressure: Increasing employee cost and operating expenses may create pressure on margin.The company is focusing on improving productivity and put up a framework for cost management.

Conclusion and Remarks:

Recent quarterly results were not up to the market expectations.However revenue increases at 4.1% and EBITDA grows at 4.5 % qoq basis.Management assures the investors about  the continuing growth story and confirms the lower quarterly numbers are just the seasonality factor.

KEY FIGURES:

   KEY FINANCIAL RATIOS